Budget, credit policy seen moving market

Mumbai: Analysts at brokerages here expect Indian companies to declare strong results for the quarter ended December, but add that the Indian central bank’s monetary policy, which will be announced in late January, and the Union Budget on 28 February will have more of an impression on the stock markets.

“The results season may not have a big impact on the stock market either way,” says Nilesh Jasani, director and head of research at Credit Suisse Securities (India) Pvt. Ltd. He adds that he expects the results to be positive. “The end-January credit policy announcement from the Reserve Bank of India will be the next big event for the market. A potential interest rate cut will start a new cycle (on the market),” Jasani says.

On Friday, Infosys Technologies Ltd, a company whose stock is part of the Bombay Stock Exchange’s benchmark Sensex index and which is considered a bellwether for both the software services industry and the market, announced that its net profit for the December quarter had risen 25% compared with a year ago. That exceeded analyst estimates and brokerages say that the company’s result will set the trend for the entire universe of companies.

Till Saturday, 60 companies had announced their results for the December quarter and reported a 22.5% growth in aggregate revenue and a 38.3% growth in profit. “There could be 18% growth in net profit of corporate India,” says Lalit Thakkar of Mumbai’s Angel Broking Ltd. According to him, all factors look positive for the market “at this point” and the market is poised for an upswing.

The Sensex went past 21,000 points twice in intra-day trading last week. It rose 45.51% in 2007, after gaining 46.82% in 2006. Most brokerages say the index could breach the 25,000 mark this year.

On Friday, it closed at 20,827.45, up 245.37 points.

Stronger foreign inflows

Most domestic brokerages are bullish on the third quarter performance of Indian companies and they predict this will lead to increased capital inflow into Indian markets. Foreign institutional investors or FIIs bought Indian stocks worth $17.2 billion (Rs67,596 crore) last year net of sales (this means the amount takes into account the value of Indian stocks they sold). This is the most money FIIs have brought into the country since they were allowed to invest here in December 1993.

“Strong third quarter results from Indian companies will further encourage FII buying, especially from those yet to enter India,” say analysts from Religare Securities Ltd. “We expect the market to peak around the Budget period in February. Also, interest rates in India could go down in the next two to three months. The US Federal Reserve’s meeting this month could announce a 50 basis points cut in interest rate,” says the brokerage’s latest report on Indian equity markets.

The Fed has cut its policy rates by 100 basis points in three stages to 4.25% since September.

The quarterly earnings preview from Angel Broking predicts strong third quarter performance from Indian companies across sectors barring a few such as software, auto and auto ancillaries. “India is no longer a potential market but one that is already living up to its significant potential,” the report says.

Motilal Oswal Securities Ltd, too, expects strong earnings growth in the third quarter. “With inflation under control, the RBI could cut interest rates. This would not only boost liquidity, but also market sentiments. With forthcoming elections, we expect policy measures to take populist hues,” says the report, which dismisses the impact of a US slowdown on corporate earnings here.

The latest India strategy report of brokerage Enam Securities Ltd says “liquidity” will remain buoyant and there could be surprise on tax rates during the Budget. With a lot of money having gone into top-line stocks in 2007, “second-rung stocks are likely to absorb more of incremental liquidity,” the report says.

Enam also predicts that the increased flow of domestic capital in the market will have more impact than FII inflows on which way the market goes. The report predicts that $30 billion domestic retail capital, including money from mutual funds and insurance firms, will flow into the equity market, while FIIs could contribute $12 billion.

The latest global economic monitor published by Lehman Brothers suggests a re-rating of India and South-East Asia.